The 2019 Spending Round: Why do figures differ?

This week, the Chancellor delivered the results of the 2019 Spending Round. This set the day-to-day spending limits for all Government departments for the financial year 2020-21, ahead of a full three-year Spending Review scheduled for 2020. The Chancellor described his new spending plans as: “turning the page on austerity and beginning a new decade of renewal.”

This Insight explores how these new plans measure up to
previous ones.

What happened in the previous Spending Review period?

The last Spending Review was in 2015, and covered the financial years from 2015-16 to 2019-20. Over this period, several government departments saw real-terms cuts in their planned day-to-day spending. The chart below shows how planned day-to-day spending – known in this context as RDEL – has changed over these years.

Local government saw the biggest cuts, at 45%. Although many departments saw increases, those with the largest ones tended to have fairly small budgets in the first place – the main exception was the Department of Health and Social Care, which saw a 10% increase on its initial budget of £121 billion. The Cabinet Office’s increase is likely down to it receiving extra money for Brexit preparations and for the European Parliamentary elections earlier this year.

And what happened at this Spending Round?

In his speech, the Chancellor said that “every single
government department has had its budget for day-to-day spending increased at
least in line with inflation.” The figures released at the same time corresponded
with this statement – some departments had their spending kept exactly in line
with inflation (a real-terms increase of zero), but most saw a real-terms
increase.

The biggest percentage increases went to Law Officer’s
Departments (three small law-focused departments such as the Serious Fraud
Office), which have now been given a relatively small spending limit of £0.7
billion, and local government -with a rather larger budget of £8.6 billion.

However, the new spending figures look rather different when compared to the Treasury’s spending totals for the current financial year, released in July:

This suggests that some departments have seen a much larger
increase in spending than was announced at the Spending Round, while others
have seen major cuts.

For example, the Department for Business, Enterprise and
Industrial Strategy (BEIS) had a 2% spending increase announced at the Spending
Round, but the chart above puts it at 162%; on the other end of the scale, the
Foreign and Commonwealth Office (FCO) was announced as having a 0% increase,
while this chart shows a 52% cut. So, what’s going on?

The government uses a ‘baseline’ figure

The answer is that Spending Reviews and Spending Rounds
present their new spending figures relative to a ‘baseline’ figure, rather than the amount of money that was
actually planned.

According to the Spending Round’s Statistical
Annex, the baseline is meant to represent “ongoing spend” – it does not
include any one-off or time-limited spending.

For example, BEIS’s spending appears to be 126% higher in
the chart above than in 2019-20, but its spending tends to change quite a lot
between years anyway due to accounting adjustments. Baselining smooths these
changes out, although we don’t know exactly what has been included in the
baseline and what hasn’t.

Similarly, the chart above suggests that the Foreign and
Commonwealth Office (FCO) is about to see major cuts. This isn’t the case
either – the FCO is responsible for a portion of the Government’s international
aid spending, but this only appears in the accounts later in the year, so
initially the total appears to be unusually low. This is corrected by the time
the next year’s accounts come out. It seems likely that the baseline figure has
taken this into account.

What was missing from the Spending Round?

The Government previously said that a number of major
decisions would be taken at the Spending Review in 2020, including the design
of the Shared Prosperity Fund (which
will replace some funding from the EU after Brexit) and the funding formula
for the police. However, these did not feature in the Spending Round, which
seems to imply that they have been postponed.

There is still a full three-year Spending Review scheduled
for next year, so decisions may be taken then – alternatively, there is likely
to be a Budget later this year, and further spending decisions may be taken
then.